Euro Zone

A planned tax on financial transactions in 11 euro-zone countries would cut the value of household savings in non-participating Britain by 4.4 billion euros (HK$46.8 billion), a report for the British financial sector said on Tuesday.

The opening shots in this battle were fired by none other than the United States Treasury Department, which had the audacity to blame Germany for a weak euro zone recovery in its semi-annual foreign exchange report.

The euro rose on Thursday as news that Spain exited recession boosted hopes for the battered euro zone, while the dollar faced headwinds over speculation the Federal Reserve would delay its monetary easing drawdown.

The single currency hovered near two-year highs against the dollar at US$1.3789, up from US$1.3775 in New York on Wednesday, while it rose to 134.18 yen, from 134.10 yen.

Industrial output from euro-zone factories defied market expectations of a month-on-month decline to rise in April, data showed yesterday, but the pace of expansion was slowed by a drop in production of energy and durable consumer goods.

Cyprus confirmed on Thursday that the cost of its EU-IMF bailout has surged to 23 billion euros (US$30 billion) from 17.5 billion euros, putting the already teetering economy in danger of collapse and further endangering large bank depositors.

According to IMF data, central banks in emerging economies cut their euro holdings by 8 per cent, or €45 billion (HK$450 billion) in 2012. The world economy is moving towards a multipolar currency regime.

Banks need to set aside more money to cover bigger potential losses on commercial real estate and from the euro area, possible fines for mis-selling and stricter risk models, the Bank of England said following a report by the Financial Services Authority.

What has set Cyprus apart is that it is one of the smallest members of the euro zone, with a failed banking system much bigger than its economy. Likewise, the €10 billion (HK$101 billion) rescue deal with international lenders, though more than half its GDP, is small change compared with the hundreds of billions in bailouts for Greece, Spain, Portugal and Ireland. But it marks a turning point in European leaders' approach to bailouts, with the balance of risk shifted from taxpayers to private investors.